We are operating in a challenging and uncertain economic environment, including generally uncertain conditions nationally and locally in our markets. Financial institutions continue to be affected by declines in the
real estate market that have negatively impacted the credit performance of mortgage, construction and commercial real estate loans and resulted in significant write-downs of assets by many financial institutions. Concerns over the stability of the
financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. We retain direct exposure to the residential and commercial real estate markets, and we are affected by these
events. Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse affect on our borrowers or their customers, which
could adversely affect our business, financial condition and results of operations.

Our ability to assess the creditworthiness of
customers and to estimate the losses inherent in our credit portfolio is made more complex by these difficult market and economic conditions. We also expect to face increased regulation and government oversight as a result of these downward trends.
This increased government action may increase our costs and limit our ability to pursue certain business opportunities. In addition, we may be required to pay even higher FDIC deposit insurance premiums than the recently increased level, because
financial institution failures resulting from the depressed market conditions and other factors have depleted and may continue to deplete the deposit insurance fund and reduce its ratio of reserves to insured deposits.

A prolonged national economic recession or further deterioration of these conditions in our markets could
drive losses beyond that which is provided for in our allowance for loan losses and result in the following consequences:

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increases in loan delinquencies;

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increases in nonperforming assets and foreclosures;

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decreases in demand for our products and services, which could adversely affect our liquidity position; and

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decreases in the value of the collateral securing our loans, especially real estate, which could reduce customers borrowing power.

We do not believe these difficult conditions are likely to improve in the near future. A worsening of these conditions
would likely exacerbate the adverse effects of these difficult economic conditions on us, our customers and the other financial institutions in our markets. As a result, we may experience increases in foreclosures, delinquencies and customer
bankruptcies, as well as more restricted access to funds.

The U.S Treasury and the FDIC have initiated programs to address economic
stabilization, yet the efficacy of these programs in stabilizing the economy and the banking system at large are uncertain.